Filed
by
National Penn Bancshares, Inc.
pursuant
to Rule 425 under the Securities Act of 1933, as amended
and
deemed filed pursuant to Rule 14a-12
under
the
Securities Exchange Act of 1934, as amended
Subject
Company: KNBT Bancorp, Inc.
Commission
File No.: 333-146617
Sandler
O’Neill & Partners, L.P. Presentation – Prepared
Remarks
East
Coast Financial Services Conference
November
13, 2007
Glenn
Moyer
:
Thank
you
to Sandler O’Neill for inviting us to present today and good morning to all of
you.
I’m
Glenn
Moyer, President & CEO of National Penn Bancshares. I’ll
introduce National Penn, and conclude the presentation with a look at our future
following the closing of our announced acquisitions of Christiana
Bank & Trust and KNBT Bancorp.
Joining
me today is Mike Reinhard, National Penn’s Chief Financial Officer, who will
discuss our historical and recent performance, our growth strategies, and our
acquisition of Christiana.
We
are
pleased to also have Scott Fainor, President & CEO of KNBT Bancorp join us
today to offer his comments on our future partnership with KNBT and the status
of our integration plan.
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SLIDE
The
next
three slides contain our legal disclaimers related to forward-looking
information and our pending transactions with Christiana and
KNBT. I’ll give you a moment to review these slides. All
of our slides will be available on our web site, as well as filed with the
SEC
following this presentation.
(PAUSE)
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SLIDE
(PAUSE)
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(PAUSE)
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Although
we will begin our presentation with an overview of National Penn and our strong
performance, given the time we have with you this morning, the substance of
our
discussion will focus on what we are
most
excited about – the future of
National Penn with Christiana Bank & Trust and KNBT
Bancorp.
As
you
can see on this slide, our retail shareholder base is
strong. However, we have seen a steady increase in institutional
ownership which has brought us closer to our peers. The acquisition
of KNBT, with institutional ownership of approximately 43%, will also boost
our
institutional ownership.
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SLIDE
Our
consistent business strategies are
key
to our success.
Proven
community banking delivery methods, a responsible credit culture, a balanced
organic and acquisition growth strategy, and the continued diversification
of
our revenue streams are all important elements of our overarching goal of
creating
sustainable
,
profitable
growth for longer term rewards
for our shareholders.
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SLIDE
Pennsylvania
is at the crossroads of one of the most attractive financial services markets
in
the country. Mega banks, such as M&T, TD Banknorth, Citizens,
PNC, Bank of America, and Wachovia have all moved into the area,
and
de
novo banks continue to spring up. We are continuously motivated by
these challenges and feel that National Penn is strategically positioned to
continue to compete with the larger, and smaller, institutions that have joined
our market.
The
markets in which we operate are strong - 7 of our primary counties are in the
top 10 counties in Pennsylvania in terms of average household
income. And, we are fortunate to be able to do a significant amount
of business in the top 3 counties in Pennsylvania demographically – Chester,
Montgomery and Bucks. These counties continue to experience strong
residential and commercial development, as well as projected household growth
at
a higher rate than the state average.
We
are
looking forward to our expansion to the north with our pending acquisition
of
KNBT, as well as our first entrance into Delaware through our partnership with
Christiana. We’ll speak more about these markets in our
presentation.
I’ll
now
turn our presentation over to our Chief Financial Officer, Mike
Reinhard. Mike?
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SLIDE
Mike
Reinhard
:
Thank
you, Glenn.
I’ll
begin with a look at a current breakdown of our core banking
products.
Approximately
61% of our total deposits as of September 30th are transaction-related core
deposits. Recently we have seen some movement from higher-rate time
deposits back to more desirable transaction accounts.
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SLIDE
75%
of
our loan portfolio is business loan or commercial real estate
loan-related.
While
we
have a $68 million dollar lending limit, our largest commercial relationship
-
consisting of multiple credits - is $31 million dollars and the average loan
size in our commercial portfolio is approximately $290,000 dollars.
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SLIDE
As
with
many of our peers, we’ve been challenged to maintain a strong net interest
margin in this flat to inverted yield curve environment. As you can
see on this slide, despite the decline in our margin, we have been able to
increase our net interest income on a fully tax-equivalent basis.
Our
margin has begun to stabilize over recent quarters. While we don’t
believe that the yield curve will make a quick, dramatic change, we do feel
that
we are likely to benefit more than some of our peers, if and when, the yield
curve returns to its historical slope.
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SLIDE
As
Glenn
noted, our asset quality is strong versus our peers, as a result of a strong
credit culture as one of our core competencies.
The
current slide depicts the quality of our loan portfolio as the percentage of
non-performing assets plus 90 days past due to total assets.
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SLIDE
Our
loan
portfolio as a whole is in good condition and we believe we remain appropriately
positioned in our overall loan loss reserve at $56.3 million dollars or 1.49%
of
total loans and leases at September 30th.
While
a
strong allowance ratio is important, we believe that a strong coverage ratio
is
even more critical. In recent years, our loan loss coverage ratio has
compared very well to our peers.
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SLIDE
Our
consistent business strategies have translated into a recognized history of
solid financial performance.
We
are
extremely proud that we are one of only
22
, out of
over 19,000
U.S. public companies, with a combined total of
50 years
of higher
earnings
and
higher cash dividends per share.
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SLIDE
This
slide illustrates our recent growth in earnings per share. All prior
EPS figures have been adjusted for our most recent 3% stock dividend which
was
paid on September 28, 2007.
While
we
evaluate Return on Equity and Return on Tangible Equity, EPS growth is currently
our
primary
performance metric.
Our
current incentive compensation plans for directors, executives, and most of
our
employees are formally tied to this performance measure.
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SLIDE
We
compliment our EPS growth, with an increasing dividend for our
shareholders. On this slide we show our cash dividend payments for
the last 5 of our 29-year track record of higher dividends.
With
our
most recent 3% stock dividend, we have
also
paid a stock split or stock
dividend in
each of the last 30 years
.
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SLIDE
Due
to a
number of acquisitions in recent years, purchase accounting rules have
negatively impacted GAAP return on equity.
As
an
alternative measure of our effective use of capital, we also measure our return
on tangible equity for comparative purposes.
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SLIDE
The
current slide reflects National Penn’s total return as compared to the S&P
500 over the last 20 years. As you can see, our performance on this
basis has been very strong.
We
believe that for investors who have a longer term view and focus on total
investment return, National Penn should be a solid
investment. Currently, based on the recent movement in our stock
price, we may be experiencing a favorable buying opportunity for these
investors.
We
believe that our
total
returns
over the longer term is one of our
best
measures of how we enhance shareholder value.
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SLIDE
We
have
benefited from solid total asset growth over the past 5 years of
14.9%.
Our
overall strategy has been to balance organic growth and growth through
acquisition – and we are challenged by our board to do both. Over the
past 5 years, our growth has reflected about a 50/50 balance of organic to
acquisition growth.
While
our
most recent strategic use of capital has been to acquire quality partners,
we
also understand the need for retaining and replenishing capital to support
shareholder value for the longer-term.
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SLIDE
National
Penn is an experienced acquirer of in and out of market companies, and our
acquisition goals are well defined.
Our
acquisition strategy to partner with quality organizations that have a proven
business model, and who choose to join us not out of necessity but by choice,
will help us to achieve our goals for continued growth and success now and
in
the future.
Our
pending affiliation with Christiana Bank & Trust Company certainly
upholds this standard and is an excellent strategic fit for us.
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SLIDE
Christiana,
based a few miles northwest of Wilmington in the state of Delaware, has a strong
record of financial success since its founding. It has enjoyed an
impressive 47% compound growth rate in net income since 2002.
Christiana
offers traditional banking products and services, and specializes in unique
wealth management services, all with a high-degree of personal
attention.
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SLIDE
The
addition of Christiana to our franchise will take National Penn’s wealth
management and trust business to another level, while introducing us to some
new
and highly attractive niche product areas.
This
acquisition has an immediate impact on the size and abilities of our existing
wealth unit, providing excellent additional growth opportunities. We
expect the transaction to be accretive to EPS in the 2nd full year of combined
operations.
Christiana
will mark our first entry into Delaware, a state with not only attractive
demographics, but also a legal, tax and judicial environment that is ideal
for a
variety of businesses. The ability to provide several unique services
is a benefit Christiana enjoys as a State of Delaware chartered bank and trust
company. We call these factors the “Delaware Advantage.”
Upon
closing, expected in early 1st quarter of 2008, Christiana will maintain its
name and status as a separately-chartered Delaware banking corporation as a
subsidiary of National Penn. And, we are delighted to have
Christiana’s CEO, Ziss Frangopoulos, continue to direct this fine organization
after our merger.
Now,
to
offer his comments on our other transformative partnership, I’m pleased to
introduce Scott Fainor, CEO of KNBT. Upon the close of our
transaction with KNBT, Scott will be joining us as Senior Executive Vice
President and Chief Operating Officer of National Penn, and President and CEO
of
National Penn Bank. Scott?
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SLIDE
Scott
Fainor
:
Thank
you, Mike.
KNBT
is a
$2.9 billion dollar institution, headquartered in Bethlehem,
Pennsylvania. A major milestone in our more than 80-year history was
the 2003 mutual-to-stock conversion at the time of the merger of Keystone
Savings Bank and First Colonial Group and its subsidiary, Nazareth National
Bank.
KNBT
is
the largest banking company based in the Lehigh Valley, serving 6 counties
in
this area of Northeast Pennsylvania. Our strength is based upon a
foundation of traditional community banking values. Our commitment is
to deliver world-class financial services, whether it be banking, wealth
management, or insurance, with a focus on personal service.
The
challenges facing our industry today are no secret. These industry
pressures have created a mandate for the leadership of banking companies to
take
decisive action that results in a more efficient, more profitable, more customer
focused organization. The combination with National Penn embodies
some of the very best of the advantages that that come with a significant
transaction such as ours. I’m thrilled to speak to you this morning
about this exciting partnership…
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SLIDE
Upon
the
close of our transaction, anticipated in the 1st quarter of 2008, our new
company will own leadership positions in some of our most important markets
in
eastern Pennsylvania.
In
challenging times, one key advantage in any business is the depth and quality
of
its people. As Glenn and I look at our new leadership team, we firmly
believe that we will have some of the
best
for managing our company and
building relationships.
While
we
see meaningful revenue synergies as part of this transaction, we only consider
them to be the “icing on the cake.” We estimate $26.2 million dollars
in cost savings, which are well defined and achievable. No heroic
assumptions were used to get to any specific number.
We
believe that the financial benefits of this merger are compelling to both sets
of shareholders. The transaction is expected to be accretive to
both
earnings per share
and
tangible book value
in 2008.
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SLIDE
Work
on
the joining of our two companies began immediately after the September
announcement of our transaction and is progressing very
well. Although we recognize that there is a lot of very hard work
involved, we don’t view this as an especially complex
undertaking. Our operations are similar, and National Penn has an
excellent integration team with a record of efficient and successful
transactions behind them. The team working on this integration
consists of key representatives from each of our companies and is
dedicated
to a smooth conversion.
One
of
the things that attracted us to National Penn, was our shared unwavering focus
on the customer. There was no surprise in our agreement that the
overarching priority through this process
must
be retaining and growing
our customer relationships. Both of our companies have demonstrated
an ability to keep their eye on the customer and continued organic growth during
conversions such as this.
Our
goals
of identifying well-defined and achievable cost savings, and the right people
for our new combined team, are underway and on-schedule. We are also
reviewing each area of our companies to determine the best and most profitable
way to do business. Through this, we are proactively communicating
with our employees to ensure that they are informed, and that their perspectives
and ideas are heard, in order to make the integration process as seamless as
possible for them and our customers.
I’ll
now
turn the presentation back to Glenn Moyer. Glenn?
NEXT
SLIDE
Glenn
Moyer
:
Thank
you, Scott.
We
at
National Penn are extremely energized about KNBT and Christiana joining our
family. Our challenge today is to make 1+1+1 equal much more than
3. With the closing of these two transactions in the next few months,
we will emerge as a “new” National Penn.
Allow
me
to explain further by giving you a partial look at the future of our Company,
beginning with our expanded market area.
The
current slide reflects the geographic coverage of our combined
franchise. The KNBT transaction creates a new force in financial
services in Pennsylvania and the greater mid-Atlantic region. The
Lehigh Valley and surrounding counties were part of our market that we had
not
saturated, and we are now doing so with the
best
in the
area. The KNBT name will be retained within the 6 counties they
currently serve.
With
the
addition of Christiana, we also achieve a valuable presence in the
demographically-attractive and business-friendly state of
Delaware. Delaware is a state that is difficult to enter de-novo, and
we are fortunate to be entering this market by affiliating with an established
high-quality and respected organization.
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SLIDE
National
Penn’s post-merger market position advances us from the 7th largest
Pennsylvania-based bank and thrift to the 5th largest in terms of asset
size.
Our
combination also places us high in a number of important counties based on
deposits. We are pleased to be represented in the top 5 in
Northampton, Berks, Lehigh, Chester, and Centre county. The counties
on the slide are vibrant growth areas with strong demographics to support future
growth.
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SLIDE
Our
new
partnerships enhance the balance of our commercial and consumer loan
portfolios.
KNBT
also
benefits our combined company with a relatively lower-costing deposit
base.
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SLIDE
The
“new”
National Penn will manage a total loan portfolio base of over $5.7 billion
dollars – an increase of over 50%.
Due
to
our similar credit cultures, our key credit quality metrics are expected to
remain strong.
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SLIDE
Currently,
our wealth management unit manages or administers over $2.9 billion dollars
in
assets. It has realized a 23.9% increase in fee income for the first
9 months of this year, as compared to the same period last year.
With
Christiana and KNBT, we will clearly reach new heights in this strong,
high-growth segment of our business. On a pro forma basis, as of
September 30, 2007, our combined company would manage or administer over $8.5
billion dollars in wealth-related assets, representing a 193%
increase.
We
plan
to leverage this new asset base by extending the Christiana “Delaware Advantage”
to the National Penn and KNBT markets.
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SLIDE
KNBT
and
Christiana’s contributions in non margin-dependent areas will accelerate our
revenue diversification goal.
As
you
can see on this slide, Christiana’s wealth management specialty translates into
an admirable 48.5% ratio of fee income to total revenue.
Over
half
of KNBT’s ratio of 33.4% fee income to total revenue is attributable to their
equally strong wealth management and insurance groups.
Our
combined resources will help to advance our merged company in these key
fee-revenue areas and allow us to grow these units to an even greater
extent.
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SLIDE
I
would
like to recap some of the current and prospective reasons to consider including
National Penn Bancshares in your portfolio:
|
•
|
a
terrific market area,
|
|
•
|
our
people - one of our primary
differentiators,
|
|
•
|
a
respectable history of increased earnings per share and dividends,
a
strong dividend payout ratio, and above-market price appreciation
over the
longer-term,
|
|
•
|
our
continued focus on diversified earnings growth and cost containment
efforts that will allow us to build shareholder value through this
current
challenging period, and,
|
|
•
|
as
outlined on our next and final slide, the opportunities for future
success
provided by our pending
acquisitions.
|
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SLIDE
We
believe that National Penn is a solid franchise today. But, we are
even more enthusiastic about our tomorrow with KNBT and
Christiana. Our highly-compatible approaches to business and shared
values were a vital factor in our decision to join together.
The
immediate impact that KNBT and Christiana will make to our fee-income areas
is
notable. Even more valuable is the expanded ability of our combined
company to offer enhanced core and affiliate products, services, and delivery
channels to current and prospective customers. Our post-merger
efforts will be
focused
on these leveraging and cross-selling
opportunities throughout our new footprint.
Finally,
we will continue to challenge ourselves
every day
to further our
success. Our expanded family will be determined to continue improving
shareholder value. We believe that National Penn’s future, with the
addition of Christiana and KNBT, is brighter than ever.
Thank
you
for your time today. We would be pleased to answer any
questions.
Safe
Harbor Regarding Forward Looking Statements:
This
presentation contains
forward-looking information about National Penn Bancshares, Inc. (National
Penn), Christiana Bank & Trust Company (Christiana), KNBT Bancorp, Inc.
(KNBT), and the combined operations of National Penn, Christiana and KNBT after
the mergers, that is intended to be covered by the safe harbor for
forward-looking statements provided by the Private Securities Litigation Reform
Act of 1995. Forward-looking statements are statements that are not
historical facts. These statements can be identified by the use of
forward-looking terminology such as "believe," "expect," "may," "will,“
"should,'' "project," "plan,'' "seek,“ ”continue, "intend,'' or
"anticipate'' or the negative thereof or comparable terminology, and include
discussions of strategy, financial projections and estimates and their
underlying assumptions, statements regarding plans, objectives, expectations
or
consequences of the transactions, and statements about the future performance,
operations, products and services of the companies and their subsidiaries.
National Penn and KNBT caution readers not to place undue reliance on these
statements.
National
Penn’s, Christiana’s and
KNBT’s businesses and operations, as well as their combined business and
operations following the mergers, are and will be subject to a variety of risks,
uncertainties and other factors. Consequently, their actual results
and experience may materially differ from those contained in any forward-looking
statements. Such risks, uncertainties and other factors that could
cause actual results and experience to differ from those projected include,
but
are not limited to, the following: ineffectiveness of their business strategy
due to changes in current or future market conditions; the effects of
competition, and of changes in laws and regulations on competition, including
industry consolidation and development of competing financial products and
services; interest rate movements; inability to achieve merger-related
synergies; difficulties in integrating distinct business operations, including
information technology difficulties; disruption from the transaction making
it
more difficult to maintain relationships with customers and employees, and
challenges in establishing and maintaining operations in new markets;
volatilities in the securities markets; and deteriorating economic
conditions.
The
foregoing review of important
factors should be read in conjunction with the other cautionary statements
and
risk factors included in National Penn’s and KNBT’s annual, quarterly and
current reports and other filings with the SEC. See the
slides entitled “Additional Information About This Transaction” included in this
presentation. Neither National Penn, Christiana nor KNBT makes any
commitment to publicly release any revision or update to any
forward-looking statements to reflect events or circumstances occurring after
the date any forward-looking statement is made or to reflect the
occurrence of unanticipated events.
Additional
Information About the National Penn/Christiana
Transaction:
National
Penn has filed a registration
statement on Form S-4 in connection with the Christiana transaction and,
together with Christiana, has mailed a proxy statement/prospectus to Christiana
stockholders in connection with the transaction.
Shareholders
are urged to read the proxy statement/prospectus because it will contain
important information about National Penn, Christiana and the
transaction.
You may obtain a free copy of the proxy
statement/prospectus as well as other filings containing information about
National Penn, at the SEC's web site at
www.sec.gov
. A free
copy of the proxy statement/prospectus, and the filings with the SEC that will
be incorporated by reference in the proxy statement/prospectus, may also be
obtained from National Penn or Christiana, by directing the request to either
of
the following persons:
|
Ms.
Sandra L. Spayd
|
Mr.
Chris J. Cusatis
|
|
Corporate
Secretary
|
Senior
Vice President and Chief Financial Officer
|
|
National
Penn Bancshares, Inc.
|
Christiana
Bank & Trust Company
|
|
Philadelphia
and Reading Avenues
|
3801
Kennett Pike
|
|
Boyertown,
PA 19512
|
Greenville,
DE 19807
|
|
(610)
369-6202
|
(302)
888-7730
|
Additional
Information About the National Penn/KNBT Transaction:
National
Penn has filed a registration
statement on Form S-4 in connection with the KNBT transaction, and National
Penn
and KNBT intend to mail a joint proxy statement/prospectus to their respective
shareholders in connection with the transaction.
Shareholders
and investors are urged to read the joint proxy statement/prospectus when it
becomes available, because it will contain important information about National
Penn, KNBT and the transaction.
You may obtain a free copy
of the joint proxy statement/prospectus (when it is available) as well as other
filings containing information about National Penn and KNBT, at the SEC's web
site at
www.sec.gov
. A free copy of the joint proxy
statement/prospectus, and the filings with the SEC that will be incorporated
by
reference in the joint proxy statement/prospectus, may also be obtained from
National Penn or KNBT, by directing the request to either of the following
persons:
|
Ms.
Sandra L. Spayd
|
Mr.
Eugene Sobol
|
|
Corporate
Secretary
National
Penn Bancshares, Inc.
|
Senior
Executive Vice President & Chief Financial Officer
|
|
Philadelphia
and Reading Avenues
|
90
Highland Avenue
|
|
Boyertown,
PA 19512
|
|
|
(610)
369-6202
|
|
National
Penn, KNBT and their respective executive officers and directors may be deemed
to be participants in the solicitation of proxies from the shareholders of
National Penn and KNBT in favor of the transaction. Information
regarding the interests of the executive officers and directors of National
Penn
and KNBT in the transaction will be included in the joint proxy
statement/prospectus.
-10-
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